The GAO (Government Accountability Office) recently published its decision on a protest filed be URS Federal Services of an award made by the Army to VSE Corporation. URS, the incumbent contractor for the work, alleged that the Army should have rejected VSE's bid as unrealistically low-priced (among other charges). GAO denied the protest.
URS complained that VSE's price was unrealistically low, asserting that VSE's low price should have caused the Army to reject its proposal. URS asserted that the terms of the solicitation should be construed as requiring the Army to perform, and document, a price realism evaluation under which VSE's proposal should have been rejected as unacceptably low.
The Army responded that the terms of the solicitation neither contemplated nor permitted it to reject a proposal on the basis of its low price. More specifically, the Army noted that the solicitation did not contain any reference to a price realism evaluation. Instead, proposals would be evaluated based on (i) affordability, (ii) reasonableness, and (iii) completeness. In short, pursuant to the terms of the solicitation, a low price could not form a basis for rejection of a proposal.
The GAO agreed with the Army. The GAO noted that as a general rule in awarding fixed-price contracts, agencies are only required to determine that prices are not unreasonably high. While an agency may conduct a price realism analysis in awarding a fixed-price contract for the limited purposes of assessing whether an offeror's low price reflects a lack of technical understanding or risk, offerors must be advised that the agency will conduct such an analysis. That is, the solicitation must contain either an express price realism provision or a statement warning offerors that a business decision to express price realism provision or a statement warning offerors that a business decision to submit low pricing may form the basis for rejecting the low-priced offeror's proposal. Absent such provisions, agencies are neither required nor permitted to conduct a price realism analysis in awarding a fixed-price contract.
The GAO did not view any of the solicitation provisions as warning offerors that proposals may be rejected on the basis of low price. Therefore the protest was denied.
Many incumbent contractors have been faced with similar dilemmas as new bidders come in and significantly undercut what incumbents know what it takes to perform the contract. In some cases, the difference is so extreme that incumbents legitimately wonder how the new contractor will be able to perform to specification. A lot of bid protests have been levied as a result. Sometimes those protests are successful where the agency deviated from the evaluation criteria. Sometimes those victories are hollow as the agency re-evaluates offers but awards to the same contractor anyway.